Credit unions widen their welcome; with new, more-flexible membership rules, credit unions are becoming an even more attractive low-cost employee benefit

HR Magazine, Feb, 2004 by Martha Frase-Blunt

Thanks to their nonprofit, tax-exempt status, credit unions traditionally have been able to offer lower interest rates on loans and higher earnings on deposits than for-profit banks. The problem--until recently--has been access: Employers faced significant hurdles when trying to help workers tap the benefits of a credit union.

In the past, credit unions were set up to serve specific industries or employee groups. To join, individuals had to be employed by a particular company or be a member of a professional organization--like a teachers' union--served by a credit union.

What's more, employers with fewer than 3,000 workers had to undergo a rigorous review by the National Credit Union Administration (NCUA), a federal agency that regulates and insures most credit unions. The review process determined whether the employer had to start its own credit union or join one already established.

Those stringent rules have been relaxed, however. Under new rules adopted by the NCUA board in March 2003, employers of any size can select from a number of institutions. The NCUA has also made it easier for credit unions to establish a "community charter," allowing them to serve specific occupations or associations and to cover a geographic community of companies and individuals.

Now, with more leeway to recruit a broad spectrum of employee groups, credit unions will soon be targeting benefits managers with a surge of marketing efforts, says David Hutchins, SPHR, senior vice president and chief administration officer for the Minneapolis-based U.S. Federal Credit Union. Hutchins, who is chairman of the Board of Directors of the Society for Human Resource Management (SHRM), says, "Many credit unions have not marketed directly to businesses in the past and lack a structured business-development function, but, going forward, we'll see them start becoming more competitive."

Under the new rules, a "community" is now readily defined as a township, county or city; a metropolitan statistical area; or a political jurisdiction. This has enabled the establishment of credit unions designed to serve people who live, work, worship or conduct business in a given community.

Like banks, Hutchins says, credit unions won't be able to differentiate among themselves in terms of financial incentives because they all will be striving to offer the most competitive rates and fees. The edge will come in their ability to provide personal, targeted services, he says. "Small credit unions may find it harder to survive, so, like the banking world, we'll probably see some consolidation over the next few years. The winners will be those institutions having a strong focus on establishing, sustaining and developing personal relationships so they can effectively meet the financial needs of each member over a lifetime."

A Broader Reach

The Chicago-based Alliant Credit Union--formerly the United Airlines Employees' Credit Union--has been adding companies to its membership as it has been seeking to expand. The institution, which changed its name to underscore that its membership is not limited to just one company's employees, is the largest credit union in Illinois and the sixth-largest in the United States, says Judy Whitcomb, SPHR, director of employee benefits and member services for the credit union.

"While our primary customer has been United Airlines employees and their families for more than 68 years, we have opened our field of membership to other employers who want to offer credit-union services as a no-cost convenience benefit," she explains. "Over the past eight months, more than 35 employers have joined our family of almost 170,000 members." (Alliant offers detailed information to HR professionals at http://public.alliant.ipcinc.net/hr/.)

Whitcomb worked for United for 19 years before moving over to the credit union. "As a human resources professional at United, I often referred employees to the credit union when they had questions about their finances. I really took the credit union for granted. But once I came here, I realized the value of the benefits we offered and how important the personal service we deliver is to our members. Our philosophy is radically different from a bank--we have members, not customers. We are here to serve them, not profit from their participation."

How They Work

In fact, personal service is a key selling point for credit unions, which often trade on their reputation as being the banks that care. Says Debbie Matz, a member of the NCUA's three-person, presidentially appointed board: "Credit unions are known for forging individual relationships with members, especially if they are serving a specific industry. They want to make the loan, even to borrowers who are turned down by commercial banks."

Credit unions came on the scene a century ago, when commercial banks and savings institutions were not particularly interested in offering consumer credit to average workers. Today more than 11,000 credit unions, holding more than $480 billion in assets, serve more than 80 million people in the United States, and the numbers are growing. "People still need access to low-cost loans, and credit unions are very competitive with commercial banks," Matz says.